Lesson 1

Revisiting Economics as a Social Science

Economics

 The study of what constitutes rational human behavior in the endeavor to fulfill needs and
wants.

 It comes from the Greek word “oikanomia” meaning “household management”.

Importance of Economics

 A good knowledge of economics offers many favorable possibilities. It guides us how to

make a living, how to use our money wisely, how to run our business, how to distribute
properly our available scarce resources and how to maximize our profits and consumer’s
satisfaction
 Economics is important in order to understand problems facing the citizen and the
family; to help the government promote growth and improve the quality of life avoiding
depression and inflation and to analyze fascinating patterns of social behavior.
 A basic understanding of economics is vital for sound decision making by individuals and
nation.

The Nature of Economics

1. Economics is a science. Like any other science, its laws and principles are arrived at only
after a long series of observations and experimentations.
*theory- an explanation of a certain event.
2. Economics is classified as a social science because it deals with the study of man’s life
and how he lives with other man.
3. Economics, as a social science, is the study of the relationship between people during
the production, distribution, and consumption of wealth in the human society.

Branches of Economics

1. Macroeconomics- deals with the economic behavior of the whole economy or its
aggregates such as government, business and household. An aggregate is composed of
individual units. -It is concerned with the discussion of topics like gross national product,
level of employment, national income, general level of prices, total expenditure etc.
- Also known as employment and income analysis.
2. Microeconomics- deals with the economic behavior of individual units such as
consumers, firms, and the owners of factors of production. Example: price of rice,
number of workers in a certain firm, the income of Mr. Styles, the expenditures of PLDT
etc.
- It is also known as the Price Theory

Divisions of Economics

1. Production- refers to process of producing or creating goods needed by the households

to satisfy their wants and need.
 Inputs- factors of production (land, capital, entrepreneurship, labor)
 Outputs- goods and services that have been created
2. Distribution – refers to marketing of goods and services to different economic outlets for
allocation to individual consumers. In monetary terms, this is the allocation of income
among persons in the household.
3. Exchange- process of transferring goods and services to a person or persons in return
for something. At present, the medium of exchange in the market is money.
4. Consumption- refers to proper utilization of economic goods. However, goods and
services could not be utilized unless you pay for it.

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 - Consumption is spending money for goods and services in order to yield direct
satisfaction
5. Public Finance- pertains to activities of the government regarding taxation, borrowings,
and expenditures.
- Deals with the efficient use and fair distribution of public resources in order to
achieve maximum social benefits.

Tools of Economics

1. Logic- a science that deals with sound reasoning and thinking.

2. Mathematics- a science that deals with numbers and their operation. Mathematics help
economist solve concrete problems involving problems such as how to calculate the
profit margin of a firm and etc.
3. Statistics- a branch of economics that engages with the analysis and interpretation of
numerical data. It deals with the process of collecting, tabulating, and analyzing data to
test the validity of certain hypothesis. For example, statistics help economists calculate
the nation’s GDP or allows them to better configure a manufacturing process to reduce
cost.

The Economics Resources

Economic resources are also known as factors of production or inputs.

1. Land- includes all natural resources above, on, below the ground such as soil, rivers,
lakes oceans, forests, mountains, mineral resources and climate. One cannot utilize this
natural resources without paying for it usually in the form of lease or rent.
2. Labor- also termed as human resources. Labor refers to all human efforts, be it mental
or physical, that help to produce want satisfying goods and services.
-represents the human capital available to transform raw materials or natural resources
into economic goods.
*human capital includes all able-bodied individuals capable of working in the nation’s
economy
3. Capital- capital can represent the monetary resources companies use to purchase
natural resources, land and other capital goods.
-capital also represents the major physical assets individuals and companies use when
producing goods and services (includes buildings, vehicles, machines and facilities,
equipment and etc.)
4. Entrepreneurs- a French word meaning enterpriser. And entrepreneur is the organizer
and coordinator of the other factors of production.
-the one who engages in economic undertakings and provides society with goods and
services it needs.
5. Foreign exchange- refers to dollar and dollar reserves that the economy has.
*foreign exchange is a part of economic resources because we need foreign currency
particularly dollars for international trading and buying of raw materials from other
countries.
*dollar is the international medium of currency used in engaging business with foreign
countries.

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